Pakistan Textile Industry Facing New Challenges
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Pakistan Textile Industry Facing New Challenges Aftab A. Khan Corresponding Author, College of Business Administration, King Saud University P.O. Box 2459 Riyadh 11451, Saudi Arabia E-mail:[email protected] Tel: 0966543647041 Mehreen Khan College of Business Administration, King Saud University P.O. Box 2459 Riyadh 11451, Saudi Arabia E-mail:[email protected] Tel: 0966591584206 Abstract The Pakistan textile industry contributes more than 60 percent (US $ 9.6 billion) to the country’s total exports. However, currently this industry is facing great decline in its growth rate. The major reasons for this decline can be the global recession, internal security concerns, the high cost of production due to increase in the energy costs etc. Depreciation of Pakistani rupee that significantly raised the cost of imported inputs, rise in inflation rate, and high cost of financing has also effected seriously the growth in the textile industry. As a result neither the buyers are able to visit frequently Pakistan nor are the exporters able to travel abroad for effectively marketing their products. With an in-depth investigation it was found that the Pakistan’s textile industry can once again be brought back on winning track if government takes serious actions in removing or normalizing the above mentioned hurdles. Additionally, the government should provide subsidy to the textile industry, minimize the internal dispute among the exporters, withdraw the withholding and sales taxes etc. Purchasing new machinery or enhancing the quality of the existing machinery and introducing new technology can also be very useful in increasing the research & development (R & D) related activities that in the modern era are very important for increasing the industrial growth of a country. Keywords: Textile; exports; global recession; production; inflation; marketing; withholding. Introduction The Pakistan textile industry total export is around 9.6 billion US dollars. The textile industry contributes approximately 46 percent to the total output or 8.5 percent of the country GDP. In Asia, Pakistan is the 8th largest exporter of textile products providing employment to 38 percent of the work force in the country. However, the textile industry currently faces massive challenges. The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products. However, APTMA argues other factors such as high interest rates and cost of inputs, non conducive government policies, and non-guaranteed energy supplies hinder their competitiveness [1]. © Research Journal of Internatıonal Studıes - Issue 14 (May, 2010) 21 History of Pakistan Textile Industry Increase in the cotton production and expansion of textile industry has been impressive in Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to 10 million bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly looms and finishing units increased but not in the same proportion. Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic and quality production of products for a highly competitive market. But unfortunately it does not have any facility for manufacturing of textile machinery of balancing modernization and replacement (BMR) in the textile mills. We need to think about joint ventures for the production of complete spinning units with china, Italy and production of shuttle less looms with Korea, Taiwan and Italy. Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA) Chairman, Appreciated government’s efforts to encourage new exports and finding new markets, which need aggressive export marketing. The steps taken on the monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not improve the cost competitiveness of exportable products due to increase in prices of the local and imported inputs of the local textile industry. During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles, 6,600 rotors ands 7,329 looms were closed down. In 1992, a foreign consultant form was hired by the government to look into the stagnate conditions in the local textile industry. One of the observations of the foreign consultant was “Pakistan has failed to make real progress in the international market and is being over taken by many of the neighboring competitor countries [2]. The rise in export of value-added products from Pakistan was another point of encouragement for the textile sector. “The export of value-added products rose to 57.4% from 53.9% in 2002 which is clear sign that we are moving in the right direction, “said the Chairman of all Pakistan textile mills association. The trade policy is considered an acceptable paper, but in the industry does not fine anything that could lead to a high level exports achievement and remove trade imbalance. Pakistan’s textile sector earned US$5.77 billion during the 2003 year, compared with US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. The total exports of textile sector in 2004 were US 5.7 billion which shows 2.5% growth it increase to 4% growth in 2005 as compared to 2004.The textile sector shows 8% negative growth in 2006.T he negative growth continue in 2007 aslo with the value of 5%.The textile sector shows 15% growth in 2008. Now we will discuss the main reasons of crisis in textile industry step by step in detail a. Lack of Research & Development (R&D) in Cotton Sector The lack of research & development (R&D) in the cotton sector of Pakistan has resulted in low quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton crops, farmers are shifting to other cash crops, such as sugar cane. It is the lack of proper R&D that has led to such a state. They further accuse cartels, especially the pesticide sector, for hindering proper R&D. The pesticide sector stands to benefit from stunting local R&D as higher yield cotton is more pesticide resistant [3]. b. Lack of Modernize Equipment Moreover, critics argue that the textile industry has obsolete equipment and machinery. The inability to timely modernize the equipment and machinery has led to the decline of Pakistani textile competitiveness. Due to obsolete technology the cost of production is higher in pakistan as compared to other countries like India, Bangladesh & china. c. Finance Bill to Burden Industry Further All Pakistan Textile Mills Association (APTMA) has told that government’s actions are not matching with its words for the textile industry. Referring to the Prime Minister Yusuf Raza Gilani speech at the © Research Journal of Internatıonal Studıes - Issue 14 (May, 2010) 22 launching ceremony of the Infrastructure Development of the Pakistan Textile City at Port Qasim Industrial Area, where Prime Minister spoke high of the textile industry contribution towards the country’s economy, Chairman APTMA Tariq Mehmood said the federal budget 2009-10 is a total negation of the acknowledgement of the role of textile industry on the part of the Prime Minister. According to him, reintroduction of minimum tax on domestic sales would invite unavoidable liquidity problem, which is already reached to the alarming level. He said the textile industry was facing negative generation of funds due to unaffordable mark up rate on the one hand and acute shortage of energy supply & unimaginable power tariff for industry [1]. d. Increasing Cost of Production The cost of production of textile rises due to many reasons like increasing interest rate, double digit inflation & decreasing value of Pakistani rupee. The above all reason increased the cost of production of textile industry which create problem for a textile industry to compete in international market. e. Internal issues Pose a Larger Threat for Pakistan’s Textile Industry Pakistan’s textile industry is going through one of the toughest period in decades. The global recession which has hit the global textile really hard is not the only cause for concern. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year raised the cost of imported inputs. In addition, double digit inflation and high cost of financing has seriously effected the growth in the textile industry. Pakistan's textile exports have gone down during last three years as exporters cannot effectively market their products since buyers are not visiting Pakistan due to adverse travel advisory and it is getting more and more difficult for the exporters to travel abroad. Textile exporters rightfully demand reduction of Kibor rate to 8% to avoid a severe decline in exports. A three-year comprehensive textile policy is expected to be announced before budget 2009-10. The textile policy has been designed to enhance the exports of textile sector to $ 25 billion in next three years. This was stated by the Minister for Textile Industry Rana Farooq Saeed Khan. Textile Minister further informed that the spinning and weaving sector would get its due share from the Export Investment Support Fund, worth Rs. 40 billion allocated in the Federal Budget 2009-10. Rana Farooq pointed out that he has advocated the case of immediate support to textile industry in the Parliament and also in the Cabinet meetings because he is confident that only textile industry was capable enough to bale out Pakistan from the current economic crisis. He further said that although we are 4th largest producer and 3rd largest consumer of cotton but unfortunately now we are at number 12 in the international trade of textile products. Additionally, he stressed that government should take immediate measures to remove slowdown in the textile sector.